Will buying a franchise send you broke?

Will buying a franchise send you broke?

Sumo Salad is in voluntary administration but the company has said it’s just a ‘road hump’.Source:Supplied

IT’S the homegrown Australian fresh food favourite, promoted by the likes of Pete Evans and Steve “Commando” Willis, that hoped to be so successful it would be “biting at the heels” of McDonald’s by the early 2020s.

Now, the chain is desperately seeking a buyer to secure its future and that of hundreds of staff.

A key reason given for its move into voluntary administration was, cryptically, due to “legacy debts”. These are to thought to relate to crippling rents the chain has been lumbered with at Westfield shopping centres.

Sumo Salad is in voluntary administration but the company has said it’s just a ‘road hump’.Source:Supplied

Sumo has played down its troubles. A spokesman insisted to news.com.au the chain was profitable, stores were trading as normal and it was just going through a “road hump”.

But a food trends watcher has said the Sumo brand is dated and may be now less crispy piece of rocket and more a limp lettuce leaf.

“The novelty has worn off,” said University of Melbourne senior lecturer Dr Lauren Rosewarne, who added that the one-size-fits-all franchise model, which Sumo has relied upon for expansion, now has an “uncool stink about it”.

Five years ago Sumo was placed on business publication BRW’s Fast Franchise list.

Now the firm is closing stores.

Sydney’s busy Broadway should be the perfect place for Sumo. It’s close to a major railway station and is surrounded by office blocks and a university.

Indeed the chain’s distinctive green brand hangs above a shop. But the shutters are down and the sign is slowly furring up with black grime — hardly the look for a chain which prides itself on fresh food.

All around it, other food chains, including Mad Mex and Subway, are doing a roaring trade.

The company has insisted that the Broadway store was closed only because its lease expired and was “trading strongly,” but over the last few months Sumo has shut around 20 other stores to bring its network down to 85.

The shutters have been brought done on a number of stores, including this one in Sydney.Source:Supplied

‘FAT BLOKES PITCHING SALAD’

The chain was formed in 2003 with Sumo founders Luke Baylis and James Miller making their fortunes riding Australia’s healthy eating wave.

“When we first started to pitch the concept to investors, they just laughed at us — two big, fat blokes trying to pitch salads. But we ended up proving them all wrong,” Mr Baylis told Australian Men’s Health earlier this year.

“We were so passionate about it that we just thought: ‘Bugger, we’re going to give it a go.’”

Prove them wrong they did, building an empire that at its peak generated $80 million in sales, employed 5000 people and had outlets as far afield as Brazil, the UK and the Middle East. Controversial chef Pete Evans grinned from its promotional materials.

In a 2013 interview with Franchise Business, Mr Baylis said his sights were set on McDonald’s and Subway: “We’d like to be biting at their heels in five to 10 years.”

But trouble lay ahead. Online reviews over the last year or so have been mixed. Some love Sumo, others aren’t so sure grumbling that the salads are stingy in size and expensive at that. “Bloody disgusting” one succinctly put it.

Eyebrows were raised last year when Mr Baylis put two Sumo companies, which owned branches in Westfield shopping centres, into voluntary administration. It was a radical effort to cajole Scentre Group, which run Australia’s Westfield centres, to lower the company’s rent as new eateries opened around them.

“We’ve seen a lack of control in these trading environments which leads to shopping centres putting direct competition right in front of you … and is creating a large cannibalisation effect,” Mr Baylis said.

On July 18, the company opted for the nuclear option and put the entire business, bar its Western Australian branches, into administration.

Ferrier Hodgson administrator Morgan Kelly said the move was to give Sumo “breathing space to stabilise and restructure the business”.

“We are confident that there will be significant interest in this iconic and well-established brand. This is a strong brand with a viable business model.”

An attempt to sell the business last year, for reportedly $50 million, failed, reported The Australian.

The company has been vocal in it’s criticism of Scentre Group, the owner of Westfield in Australia. Picture: Brendon Thorne/BloombergSource:Supplied

AT WAR WITH WESTFIELDMr Kelly said the company was profitable but had been struggling with “legacy debts”. A Sumo spokesman would not confirm if “legacy debts” referred to the shopping centre stoush but said changing consumer tastes and “escalating costs” had put pressure on small businesses including its franchises.

The company said it was reconsidering shopping centres completely.

“Back when we started, the food court was the only place people could get food while shopping.”

Scentre Group wouldn’t comment on the acrimonious relationship, but last year chief executive Peter Allen told Fairfax that extra choices in shopping centres led to more customers.

“Sumo Salad, that’s a franchisee model. How good the model is, we don’t know,” he said.

One of Sumo Salad’s new format Green Label stores in Sydney.Source:News Corp Australia

‘UNCOOL STINK’

Dr Rosewarne, an expert in trends and popular culture, told news.com.au the franchising model itself was part of the problem.

“The temptation with any outlet of the Sumo ilk is to expand through multi-locations and franchises.

“The problem is every location is duplicating the success of the first location. Soon, the novelty wears off, they’re everywhere, and diners are seeking the next culinary thrill.”

Whereas salads were once all the rage, now it was about superfoods and more recently Buddha bowls and poke bowls.

“Diners are fickle and seeking constant newness. They want to eat what they’ve seen in their Instagram feed.

“This means entities like Sumo need to find a way to not only be nimble and stay abreast of — and adapt to — dining trends, but they need to recognise that food franchises have a bit of an uncool stink about them.”

Sumo should give its outlets the ability to cater creatively for their customers, she said. The challenge was to balance this with a well-known national brand.

The firm agreed customers wanted “unique and great experiences” and said it had created its Green Label offshoot to do just that. It features rustic surroundings, yoghurt stations and even an “in-store farm”.

These stores have outperformed the rest of the network by 40 per cent, Sumo said. But they are still few and far between. Nonetheless, as long as Australians are worried about their waistlines, Sumo hopes it has a future.

“Like most entrepreneurial businesses, we have faced many challenges and struggles.